By PETER HUSSMANN
A district court judge's ruling last week in a Jasper County property classification case is being watched by assessor's across the state for its potential impacts.
On April 2, District Court Judge Dale Hagen ruled that the owners of two 24-unit apartment buildings in southwest Newton are allowed to have their properties reclassified from commercial to residential because they met the requirements of state code as multiple unit housing cooperatives.
Larry and Connie Krupp of Nevada filed an appeal to their property reassessment increases last June. In addition to asking that the assessed values be lowered, they argued that the properties were "misclassified as commercial properties" when they "are multiple housing cooperatives and should be classified as residential properties," a change the Krupps enacted in late 2007.
The Jasper County Board of Review did agree to lower the assessments of the properties at 1650 S. 15th Ave. W. (from $603,040 to $574,230) and 1209 W. 16th St. S. (from $725,510 to $693,900) because they were "assessed for more than the market value" but did not budge on the commercial classification of the properties.
Lawyers for the Krupps appealed the decision to the district court. Ironically, the Krupps argued that a change in state law that allowed the Park Centre property in Newton to be classified as residential following the Iowa Supreme Court's dismissal of its case in 1995 was used as the basis of the appeal. The lawyers noted that state legislators passed a law the next legislative session that required all land and buildings of multiple housing cooperatives to be classified as residential, a move that gutted the Supreme Court's ruling in the Park Centre case.
Assistant County Attorney Jim Cleverley Jr., on behalf of the Jasper County Board of Review, argued that the Krupps were operating the properties as multi-unit apartment buildings, certificates of ownership were not issued to tenants and renters were not given any ownership interest in the properties, all situations he said merited the continuation of the commercial property classification.
Initially, Judge Hagen did not buy the Krupps' arguments saying they were not abiding by the "spirit of the law."
"Once you look behind the facts to the true motive and intent of the parties, it is more than apparent that the (Krupps) have not complied with the spirit of the law," Hagen wrote in his initial Feb. 4 ruling on the matter. "(They) are taking advantage of an organization scheme in order to obtain a tax benefit."
Hagen went on to note in his initial ruling that there was no evidence presented that would substantiate the Krupps organization of the properties as a cooperative housing unit corporation under section 499A of the Iowa Code, such as corporate meetings and bylaws.
"This was an example of two people, seeking to minimize their tax liability, forming a shell multiple housing cooperative ... while actually operating a standard rental property," Hagen wrote in dismissing the Krupps' appeal of the Jasper County Board of Review's decision.
Later that month, lawyers for the Krupps were back in court asking the judge to reconsider his ruling. The Krupps argued that judge did not follow the stipulation of facts as presented and agreed to by the parties in making his ruling. Lawyers presented more than 130 pieces of evidence they claimed countered facts used by the judge in dismissing the appeal.
Judge Hagen agreed that his initial ruling was wrong. In revising the ruling on April 2, he noted that it was "incorrect to base the decision on information not in evidence."
"In light of the new evidence, it is apparent the (Krupps') rental properties were improperly classified and the appeal should be granted, rather than dismissed as was done in the previous ruling."
Should the ruling stand - the county may appeal the decision - local taxing jurisdictions will see lower property tax collections as a result. Using the new values approved by the Board of Review and the present levy rate for commercial properties in Newton and area jurisdictions would have received a total of $54,315 in property taxes from the two properties. As residential properties, which are eligible for this year's 45.5893 rollback, the amount of taxes collected drops to $24,761.
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